Sex Scandal Taints Oil Drilling Debate

It's a strange mix, and it couldn't have come at a worse time for those in Congress pressing to expand oil and gas development off America's beaches while trying to stave off an election-year rush by Democrats to impose new taxes and royalties on the oil industry.

An Interior Department investigation describing a "culture of substance abuse and promiscuity" by workers at the agency that issues offshore drilling leases and collects royalties hit lawmakers Wednesday just as they prepared for votes next week on expanding offshore drilling.

"On the eve of Congress starting this big debate you've got a horror story of mismanagement and misconduct in programs that are going to be a key part of the discussion," Sen. Ron Wyden, D-Ore., said in an interview, adding that it can't help but influence the debate.

The two-year, $5.3 million investigation by Interior's inspector general found workers at the Minerals Management Service's royalty collection office in Denver partying, having sex, using drugs and accepting gifts and ski trips and golf outings from energy company representatives with whom they did government business.

The investigations exposed "a culture of ethical failure" and an agency rife with conflicts of interest, Inspector General Earl E. Devaney said.

An employee who attended a so-called "treasure hunt" in the desert with all expenses paid by an oil producer.

A former supervisor who bought cocaine from a colleague, then boosted her performance award, had sex with subordinates and steered government contracts to an outside business where he also worked.

Between 2002 and 2006, 19 oil marketers - nearly a third of the Denver office staff - received gifts and gratuities from oil and gas companies, including Chevron Corp., Shell, Hess Corp. and Denver-based Gary-Williams Energy Corp., the investigators found.

"Employees frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and natural gas company representatives" who referred to some of the government workers as the "MMS Chicks."

The director of the royalty program had a consulting job on the side for a company that paid him $30,000 for marketing its services to various oil and gas companies, the report said.

MMS Director Randall Luthi said in an interview the agency was taking the report "extremely seriously" and would weigh taking appropriate action in coming months.

Interior Secretary Dirk Kempthorne in a statement released Thursday vowed to take swift action, saying that he was "outraged by the immoral behavior, illegal activities and appalling misconduct of several former and long-serving career employees."

"We must and we will eliminate any remaining negative elements in the Minerals Management Service," Kempthorne said.

But the impact in Congress, where lawmakers are debating an expansion of the offshore oil and gas leasing program by allowing drilling in areas long off limits, was immediate.

"This is why we must not allow Big Oil's agenda to be jammed through Congress," said Sen. Bill Nelson, D-Fla., who strongly opposes any expansion of offshore drilling, especially closer to Florida. He said the report "shows the oil industry holds shocking sway over the administration and even key federal employees."

"This IG report has it all - sex, drugs and the Bush administration officials once again in cahoots with Big Oil," said Sen. Charles Schumer, D-N.Y., whose Joint Economic Committee released a report last year claiming the Minerals Management Service has failed to collect millions of dollars in oil royalties.

Republicans and Democrats promised further scrutiny of the Interior Department agency which last year handled $4.3 billion in royalty-in-kind payments from energy companies drilling on federal lands. Under the program oil companies give the government oil in lieu of cash and the MMS office in turn sells the oil on the open market.

Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee, said the IG report "raises very serious questions" about the royalty collection process, something especially troublesome "given the potential for expanded domestic drilling." He said some basic reforms in the royalty-in-kind program should be included in drilling legislation.

Wyden said the program should be suspended to "clean house" at the federal agency and "bring back the process of rigorous audits and accountability."

Rep. Nick Rahall, D-W.Va., chairman of the House Natural Resources Committee, announced a hearing next week on the investigaton. "This whole IG report reads like a script from a television miniseries and one that cannot air during family viewing time," he said.

But Republicans rejected suggestions that the scandal makes the need for more offshore oil and gas any less urgent.

House Democrats on Wednesday offered a broader drilling proposal than they had floated previously. It would lift all moratoria on drilling 100 miles from shore and allow energy development beyond 50 miles from the coast if a state agrees. Waters closer than 50 miles would continue to be protected.

The drilling measure is part of a broader energy package that also would roll back tax breaks for the largest oil companies and require them to pay additional royalties, with the money to be used to spur renewable energy programs and conservation.

House Majority Leader Steny Hoyer, D-Md., called it "a strong bill that will increase responsible drilling and invest in renewable energy" and said those criticizing it would "rather have a political issue."

But House Republican leader John Boehner, R-Ohio, accused the Democrats of "trying to pull a hoax on the American people." He said the plan would result "in little or no new American energy production" because states would share no royalties and have little financial incentives to allow drilling.

The Senate, meanwhile, is expected next week to take up several drilling proposals, including one that would open waters off the Atlantic from Virginia to Georgia and the eastern Gulf off Florida to drilling but keep the bans in place elsewhere. That plan also would allow for a 50-mile coastal buffer.